President's Executive Orders Further Complicate Relief Talks
Washington Policy Analyst Ed Mills discusses implications for unemployment benefits, payroll taxes, student loans and evictions.
President Trump’s executive actions on unemployment insurance benefits, payroll taxes, student loans and evictions complicate the path forward for a comprehensive fiscal relief package – especially as there is currently no clear catalyst for action out of D.C. The legality, operational questions and political impacts will be debated. We ultimately think a fiscal relief deal in the $1.5-2 trillion range is doable, but will require further compromise before negotiators address more complicated policy details.
Complicated path forward for comprehensive package
Trump’s executive actions complicate the political dynamics in ongoing negotiations, but there remains a long list of priorities for a comprehensive package that have bipartisan support. Continued small business support, a second round of stimulus checks, funding for schools, healthcare funding, liability protections, aid for impacted sectors, and state/local aid will incentivize continued negotiations ahead of elections.
The timing of a package remains difficult to pin down, but there is still a sense that additional comprehensive fiscal support is coming. Negotiations are further complicated by a lack of a near-term catalyst to advance talks, especially as attention turns to party conventions and lawmakers’ campaign kickoffs in their districts/states.
Executive orders add to uncertainty
President Trump’s extension of unemployment benefits at $400 shows that the benefit add-on remains a moving target and the $400 calibration is likely the lowest level a final deal would include. Overall, the actions add a lot of uncertainty, especially on payroll tax and eviction protections, and accomplish few if any longer-term goals.
The politics are also dicey, as there is a strong argument that the actions put President Trump in a good spot politically for the time being and Democrats could be seen as overplaying their hand if they challenge these actions in court. Longer term, they could easily become a political problem for Trump if unemployment benefits are slow to materialize, tax liabilities on payroll cuts create uncertainty, evictions continue, and concerns rise over the solvency of Social Security and Medicare.
The market will be watching this fight closely to see if it shifts expectations on the outcome of presidential and congressional races.
Action on unemployment insurance benefits
- FEMA is directed to tap $44 billion from the federal Disaster Relief Fund (DRF) to provide a total $400 unemployment insurance add-on to states that request funding.
- Under the program, the federal government would provide 75% of the payment ($300) with states providing 25% ($100).
- States to tap $80 billion in remaining state aid from the CARES Act’s Coronavirus Relief Fund (CRF) to contribute 25% of payment.
- Benefits retroactive to expiration of CARES Act unemployment benefits.
- Benefits run through December 27, 2020, or until DRF balance is depleted to remaining $25 billion allocated for major disaster relief (DRF currently at about $70 billion).
- Estimates put $44 billion of funding as sufficient for four to five weeks of unemployment payments.
Policy insight: There are questions on the legality of this move and even more questions on the politics. (Will Democrats sue to stop aid to unemployed individuals?) Operationally, it is unclear how long this will take to implement as it is arguably a new program. It’s notable that Republicans have come up to $400 per week, but Democrats are still at $600. A longer-term deal would have benefits at least at $400, and Democrats will want to ensure funding goes to at least January 31 (past Inauguration Day, January 20).
Action on payroll tax
Directs deferral of payroll taxes and exploration of means to eliminate deferred payments.
- Payroll taxes deferred from September 1 through December 31, 2020.
- Withholding deferral available for incomes less than $4,000 per pay period.
- President Trump would seek permanent cut of deferred payment if reelected.
Policy insight: This is the provision that is most likely to be litigated by Democrats, and we could see the potential for some Republican support and business community support. These taxes will still be owed and could pose a tax liability come next Tax Day. These taxes fund Social Security and Medicare – permanent reductions are tantamount to major entitlement reform – which politically have always been a “third rail” of American politics. (Democrat Joe Biden is going on offense against the move on this point.) The move is also coming under criticism from Republican lawmakers.
Action on student loans
- Federal student loan payments are deferred through the end of the year and interest rates on loans held by the Department of Education are set to zero in that time period.
Policy insight: This action is likely to be the least controversial. Democrats proposed student loan forgiveness as part of their HEROES Act relief legislation, but it remains unclear whether there will be any student loan provisions in the bill currently under negotiation.
Action on eviction
- HHS and CDC directed to consider whether measures to temporarily halt residential evictions are necessary to prevent virus spread.
- Treasury and HUD directed to identify potential sources of federal funding to provide temporary financial assistance to renters and homeowners struggling to meet monthly payment obligations.
- HUD directed to promote ability of renters and homeowners to avoid evictions resulting from financial hardships.
- FHFA directed to review authority to prevent evictions and foreclosures.
Policy insight: Immediate impact of evictions order is unclear as it will require agencies to develop policies. Lack of clarity arguably maintains urgency around fiscal relief package negotiations.
All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change.